Matt Yglesias takes another swing at the left-neoliberalism debate (now renamed progressive-neoliberalism?) in this post here. He claims that British left-wingers’ gripes about the alleged failure of the Blair/Brown New Labour project — which he takes to be a shining model of progressive neoliberal governance — are definitively refuted by this graph: Henry Farrell offers a few […]

Matt Yglesias takes another swing at the left-neoliberalism debate (now renamed progressive-neoliberalism?) in this post here.

He claims that British left-wingers’ gripes about the alleged failure of the Blair/Brown New Labour project — which he takes to be a shining model of progressive neoliberal governance — are definitively refuted by this graph:

Henry Farrell offers a few rebuttals and points to some further rebuttals from Brian Weatherson. Since this is a rather crucial point in the argument, let me summarize the already identified problems with this graph-as-argument and add some new ones.

First, what does this graph show? Each line shows the growth in post-tax, post-transfer income for households at every level of the income distribution. The light line shows the Thatcher-Major years and the dark line shows the Blair-Brown years. Clearly there was a sharp rise in inequality under Thatcher — the shape of the line shows that the higher you go up the income scale the bigger the rise in income.

Under New Labour the rise in inequality was much less. At the lowest and highest rungs of the income ladder, the old Thatcher pattern still holds — higher incomes get bigger rises. But within the broad middle of the income distribution — roughly from the 20th to the 90th percentiles — there was a flat-to-mildly-redistributive pattern. This isn’t because low-wage pay was rising; it’s because of the elaborate system of cash transfer programs set up under Blair. This is the model Yglesias is touting.

The first problem with this argument, as Brian Weatherson explains, is that the flatter New Labour pattern of income growth didn’t replace the skewed Thatcherite line, it built on it. In other words, first inequality increased a lot under Thatcher; then it increased only a little bit more under New Labour. (Overall inequality was higher at the end of the Labour era than it was at the beginning; that is, the Gini index, a summary measure of inequality, rose.)

Of course, the trend improved under Labour; but all that says is that New Labour had a better record than Thatcher. Who was arguing the opposite?

Now let’s ask some awkward questions about that nice, flatish New Labour line. How were all those transfers being financed? The answer is that in those years the UK, like the US, saw a series of asset bubbles, accompanied by a massive increase in private debt. This “privatized Keynesianism,” [gated] as the British political economist Colin Crouch has labeled it, fueled by a Blairishly deregulated financial sector — there’s the “neoliberal” part of “progressive-neoliberalism” — underwrote the economic growth that generated all those tax revenues. In other words, this is all about “globalize-grow-give,” as Freddie deBoer puts it.

But we all know what happened next. When the crisis came and asset prices finally fell, overleveraged households were forced to slash their spending, leading to a plunge in both national income and tax revenues. Suddenly the public budget was in deficit and cuts to all those Blairite programs were the order of the day. That is the world we are currently living in.

What will be the result of all those cuts? The UK Institute for Fiscal Studies runs projections for poverty and inequality levels. Using Table 4.2 of this paper and Table 1 of this paper, we can calculate the actual or projected non-elderly poverty rate — after taxes and benefits — for each year from the start of the New Labour experiment in 1996–97 to the out-year 2013–2014. (The projections don’t cover the elderly.) These figures use the standard British poverty definition, which is a relative measure: income less than 60% of the median.

So what we see is a big drop in poverty in 1997–2005; followed by a big rise in poverty in 2005–2014 that virtually wipes out the entire prior drop. (There was a brief pause in the renewed upward trend during 2010–11, apparently due to falling median incomes.) According to the IFS, the projected rise in relative poverty is mostly due to the current government’s austerity budget cuts (see Table 3).

Summing up, then, the post-1997 New Labour-and-beyond era can be divided into two sub-periods, which differ from each other in two ways. First, obviously, one was the era of New Labour while the other spanned both New Labour and the current Conservative-Liberal government. Second, and more importantly, one era witnessed a series of huge asset bubbles in the stock and housing markets, while the other era showed the ugly aftermath of those bubbles.

So insofar as New Labour represents the apotheosis of the “progressive neoliberal” strategy, we might say that progressive neoliberalism works — on its own terms — under two conditions: (a) there must be huge financial imbalances and (b) there must be a Third Way government currently in power.

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